Few really understand equalization program
Resource revenues should be excluded from calculations
By John McLeod – Money editor
THE CONSERVATIVE premier of Nova Scotia wants to orchestrate a write-in campaign that will see 15,000 people in this province send a postcard to Ottawa telling political leaders there to be fair to this province – even though one would be hard-pressed to find more than 15 people hereabouts who have even a passing understanding of Ottawa’s equalization program and arguments for changing it.
In response, a former Conservative member of Parliament for Halifax charges the premier’s trying to send these voters on “a fool’s errand” and making a laughingstock of them.
“It’s one thing for a country-doctor-cum-premier to make a fool of himself on the national stage. That’s his choice,” Howard Crosby thundered in comments on an Internet Web site, assuming anyone cared. “But to encourage innocent Nova Scotians to put their good names to a begging message based on ignorance of historical facts is like encouraging dropouts to panhandle.”
It is, indeed, the summer silly season – especially in the news-gathering business, where Crosby likely would have been (properly) ignored were it not August.
However, at the risk of causing readers’ eyes to glaze over in boredom and/or misunderstanding, a mere columnist begs to point out that the former MP – and some other provincial premiers who should know better – are dead wrong to characterize the Nova Scotia campaign as simply begging for more federal cash.
The debate is, rather, about the proper role of non-renewable resources within the equalization program. Clearly Ottawa is not sure what that role should be. It excluded resource revenues from the formula when it created equalization in 1956, added half of resources revenues in 1962, and then tinkered with the formula no less than eight times up to 1982. But the argument for excluding resource revenues from equalization calculations is because the royalties are fundamentally different from other types of provincial revenues.
“Equalization,” economist Brian Crowley, president of the Halifax-based Atlantic Institute for Market Studies, has said, “does not make the distinction between income and the proceeds from the sale of a capital asset. “It treats royalty revenues the same as it treats personal, corporate and sales taxes. Equalization payments fall in response to changes in royalties, even though all the province has done is convert a physical asset into a financial asset.”
If Nova Scotia, and Newfoundland, agree to use these converted capital assets not as regular income but to improve their economic outlook – paying down debt, lowering taxes, etc. – the argument goes that this will reduce reliance on equalization by contributing to overall growth and increasing personal, corporate and sales tax revenues.
“By removing non-renewable resources from equalization,” Crowley concluded, “Ottawa has a chance to get out of the way and let Nova Scotia and Newfoundland make a success of their natural economic strengths.”
If you’re interested in the full-blown AIMS argument, visit the Web site at www.aims.ca and read a 55-page paper written by longtime regional public and private-sector executive and academic Roland Martin.
It’s not an easy read, but you’ll come away with a reasonable understanding of the issue. Which is more, it sez here, than Crosby has.